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Ruling

Subject: Residency status and foreign sourced income

Questions and answers:

Were you a resident of Australia for income tax purposes for the period that you lived and worked in country Y?

No.

Is the income you derived from country Y subject to Australian income tax?

No.

This ruling applies for the following period:

Year ended 30 June 2010

Year ended 30 June 2011

Year ended 30 June 2012

The scheme commenced on:

January 2010

Relevant facts

You were born in and are a citizen of Australia.

You are a divorced single mother and have one dependant.

You accepted an employment assignment in country Y for an extended period.

You took an absence from your Australian employer to enable you to live and work in country Y.

You left Australia and arrived in country Y on a work permit.

Your dependant accompanied you for the duration of your overseas contract.

Whilst in country Y you and your dependant lived in self provided fully furnished rental accommodation.

The only assets that you owned in Australia were furniture and your superannuation.

Prior to your departure you placed all your furniture and personal items into storage.

You did not have any overseas assets.

While undertaking your employment assignment in country Y you returned to Australia for a short period.

During your overseas employment contract your dependant attended school in country Y.

You are a member of a super fund. Although this account remained intact during the period that you worked in country Y there were no contributions made to the fund.

While in country Y any sporting and social ties that you had in Australia were allowed to lapse.

You have never been a Commonwealth Government of Australia employee.

You returned to Australia after the completion of your employment contract.

Relevant legislative provisions

Income Tax Assessment Act 1997, Subsection 995-1(1).

Income Tax Assessment Act 1936, Subsection 6(1).

Income Tax Assessment Act 1997, Subsection 6-5(3).

Reasons for decision

An Australian resident for tax purposes is defined in subsection 995-1(1) of the Income Tax Assessment Act 1997 (ITAA 1997) to be a person who is a resident of Australia for the purposes of the Income Tax Assessment Act 1936 (ITAA 1936).

The terms resident and resident of Australia, in regard to an individual, are defined in subsection 6(1) of the ITAA 1936. The definition provides four tests to ascertain whether a taxpayer is a resident of Australia for income tax purposes. These tests are:

· the resides test

· the domicile test

· the 183 day test

· the superannuation test.

The first two tests are examined in detail in Taxation Ruling IT 2650: Residency - Permanent Place Of Abode Outside Australia.

The primary test for deciding the residency status of an individual is whether the individual resides in Australia according to the ordinary meaning of the word resides.

However, where an individual does not reside in Australia according to ordinary concepts, they may still be considered to be a resident of Australia for tax purposes if they satisfy the conditions of one of the other three tests.

The resides test

The first question to be asked in considering the residency status of a person is whether he or she can be considered to reside in Australia. If the test of residence according to ordinary concepts is satisfied, there is no need to apply any of the other tests. The person is a resident of Australia for income tax purposes.

The ordinary meaning of the word 'reside', according to the Macquarie Dictionary, 2001, rev. 3^rd edition, The Macquarie Library Pty Ltd, NSW, is 'to dwell permanently or for a considerable time; having one's abode for a time', and according to the Compact Edition of the Oxford English Dictionary (1987), is 'to dwell permanently, or for a considerable time, to have one's settled or usual abode, to live in or at a particular place'.

You left Australia accompanied by your dependant, to live and work in country Y for an extended period. Since you were physically present in country Y during this period, you are not considered to be residing in Australia according to ordinary concepts under this test. Therefore, you are not a resident of Australia for income tax purposes under the 'resides test'.

The domicile test

If a person is considered to have their domicile in Australia they will be considered an Australian resident unless the Commissioner is satisfied they have a permanent place of abode outside of Australia.

A person's domicile is generally their country of birth. This is known as a person's 'domicile of origin'. In order to show that an individual's domicile of choice has been adopted, the person must be able prove an intention to make his or her home indefinitely in that country. From the information that you have provided, you did not demonstrate an intention to become a citizen of country Y and were still a citizen of Australia. Therefore it is considered your Australian domicile remained unchanged.

The expression 'place of abode' refers to a person's residence, where they live with their family and sleep at night. In essence, a person's place of abode is that person's dwelling place or the physical surroundings in which a person lives.

A permanent place of abode does not have to be 'everlasting' or 'forever'. It does not mean an abode in which you intend to live for the rest your life.  An intention to return to Australia in the foreseeable future to live does not prevent you in the meantime setting up a permanent place of abode elsewhere.

For the period that you were overseas your circumstances were the following:

· you left Australia to live and work in country Y for an extended period;

· you had an extended employment contract in country Y;

· your dependant accompanied you throughout the term of your contract and attended school in country Y;

· you lived in long term self provided rental accommodation in country Y;

· you did not own any substantial assets in Australia; and

· you only return to Australia on 1 occasion from for a short period.

Based on these facts, it is therefore considered that you have established a permanent place of abode in country Y, particularly given that you lived in long term self provided rental accommodation during the term of your assignment and you were accompanied by your dependant who also attended school in country Y. Therefore, you are not considered to be an Australian resident under the domicile test.

Accordingly, for the period that you lived and worked in country Y you are a not a resident of Australia for income tax purposes under the domicile test.

The 183 day test

Under the 183 day test, a person is a resident of Australia if they are actually physically present in Australia for more than 183 days in an income year unless the Commissioner is satisfied that their usual permanent of abode is outside of Australia and they have no intention of taking up residence here.

You were not physically present in Australia for the period that you lived and worked in country Y (with the exception of a short visit to Australia). Therefore, you are not a resident of Australia under the 183 day test for this period.

The superannuation test

An individual is considered to be a resident if that person is eligible to contribute to the Public Service Superannuation Scheme (PSS) or the Commonwealth Service Superannuation Scheme (CSS), or that person is the spouse or child under 16 of such a person. Generally Commonwealth Government employees are eligible to contribute to the PSS or CSS.

In your case, you have never been a Commonwealth Government of Australia employee and therefore you are not able to contribute to the above mentioned superannuation schemes. Therefore, you are not a resident of Australia under the superannuation test.

Conclusion

As you were not a resident of Australia under any of the tests of residency outlined in subsection 6(1) of the ITAA 1936 and subsection 995-1(1) of the ITAA 1997 for the period that you lived and worked in country Y, you were not an Australian resident for income tax purposes for this period.

Assessability of foreign sourced income

Section 6-5 of the ITAA 1997 provides that where you are a resident of Australia for taxation purposes, your assessable income includes income gained from all sources, whether in or out of Australia. However, where you are not a foreign resident of Australia for income tax purposes, your assessable income includes only income derived from an Australian source under subsection 6-5(3) of the ITAA 1997.

Ordinarily, the source of salaries and wages income derived by an employee is the place at which the services are performed (Federal Commissioner of Taxation v. French (1957) 98 CLR 398). In your case, the salary and wages you received from your employment for duties performed in country Y. Therefore consistent with the decision in Federal Commissioner of Taxation v. French, this income is considered to be derived from sources outside Australia.

Accordingly, as you are a foreign resident of Australia for tax purposes and the salary and wages you received are considered to be from a foreign source, the income is not assessable in Australia under subsection 6-5(3) of the ITAA 1997.